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Financial managers can hold from 10 up to several hundred different investments. These investments can be diversified across countries, asset classes, industries and companies. A "diverse" portfolio reduces the impact of any fluctuations in an investment's market value.
For example, take an individual shareholder and a financial manager with an investment universe of stocks A, B, C and D. The first investor holds $100,000 of stock C and a financial manager holds $100,000 of stocks A, B and C, equally weighted. If the market value of stock C declines by 10% then the first investor would lose $10,000, whereas the financial manager's loss would be limited to approximately $3,300 or 3.3%.
While a personal shareholder may feel that they can diversify themselves, it might be interesting to know that statistically significant diversification can only be achieved with a portfolio of over 40 stocks!
Financial managers are experienced and qualified professionals who specialise in the selection and maintenance of investments. The manager maintains extensive contacts outside the firm and has access to detailed information, which together with in-house expertise, allow it to make informed timely decisions on ...